Here at this blog we talk a lot about corrective regulation but rarely
stop to examine current government policy. In reality, most government
tax policy focuses either on revenue gathering or on discouraging
consumption of demerit goods. Infrequently, a corrective tax is
proposed – such as the ‘fart’ tax – and then discarded when it proves
unpalatable to the interest group generating the externality.
The fact is that corrective taxes are usually targeted at a
particular group and, the more precisely targeted they are, the more
efficient they are. These ‘discriminatory’ taxes are the ones least
likely to be implemented by a government wanting to appear fair and
even-handed: taxing specific groups is a sure way to generate
resentment at your policies.
So, if the taxes we want are equally as unlikely to eventuate as to be
magically fixed by ‘the market’, are we really any less removed from
reality than the blinkered free-marketeers that we scoff at?